Wax Marketing Blog

RFM, 40/40/20 and other basic marketing rules no one should ever forget

Both entrepreneurship and marketing are fields that experience rapid change, especially in the last couple decades as tech has taken over. However, both entrepreneurship and marketing are fields where experience is extraordinarily valuable at fostering success. Just as experienced entrepreneurs with a few businesses under their belts know more than a thing or two about starting and running a company, veteran marketers have learned a heaping handful of basic marketing rules about promotions and advertising that are essential to building and maintaining an audience.

Young entrepreneurs, eager to design products and gain funding, often rush into the more exciting aspects of building a business, and thus many fail to learn even the most basic marketing rules of beginning a business – like the importance of marketing even at early stages. To rectify that, here are a few age-old marketing guidelines entrepreneurs desperately need to grow their businesses.

1. RFM

R stands for recency, meaning the last time a customer made a purchase. F stands for frequency, or how often a customer buys items or services. M is the monetary value of a customer, otherwise described as how much money they spend each time they visit. Altogether, RFM is the traditional formula used to distinguish between different segments of a customer audience. At the top, the best customers are those who have visited recently, visit often, and always drop a lot of cash; at the bottom are those customers who showed up once, years ago, and bought the cheapest thing in the store.

The important lesson behind RFM is that not all customers are equal. Entrepreneurs must understand that top-tier customers deserve a majority of a business’s valuable marketing messages because they are the ones who are likely to react appropriately. An even better marketing strategy is to create direct marketing campaigns based on RFM level, so frequent and infrequent customers aren’t receiving the exact same marketing treatment.

2. 40/40/20

In the 1960s, marketing guru Ed Mayer came up with this simple-and-sweet method for calculating proper response to a marketing campaign: 40 percent of a campaign’s success should come from the audience; 40 percent should be due to the product or offer; and the last 20 percent should be the result of creative. Basically, Mayer suggested that flashy colors and catchy jingles only go so far in attracting attention for a business – much more effective is sending the right messages to the right people.

Therefore, it is vital that entrepreneurs have a fundamental understanding of their audiences before they begin their businesses. How to conduct such research is something they can learn from the best online MBA program. Earning an MBA will familiarize entrepreneurs with essential business practices – including marketing – and present them with important tools for success.

3. AIDA

Different customers will decide to buy at different times, but everyone follows the same four-step path to making purchasing decisions. That path is AIDA: attention, interest, desire, and action. Regardless of a customer’s background, a business will always need to attract his attention, engage with him to cultivate his interest, convince him of his desire, and facilitate his action in spending money. However, whether the complete process takes five minutes or five months depends on the business.

AIDA isn’t always an active process. In fact, effective web design should take full advantage of AIDA. If a business’s site can move customers along AIDA’s path, businesses will find it much easier to make sales.

The 80/20 is a basic marketing rules that applies to many things.

4. 80/20

Perhaps the oldest of basic marketing rules, this concept dates to the Turn of the Century, when an Italian renaissance man named Vilfredo Pareto recognized that 80 percent of Italy’s land was owned by just 20 percent of its people. Today, that disparity might be greater, but the 80/20 rule still holds true in business – almost everywhere a business leader looks. For example, 80 percent of a business’s sales will come from 20 percent of its customers; 20 percent of a business’s products will make up about 80 percent of its sales; 80 percent of a business’s social media posts are read by 20 percent of the audience, while 20 percent of the audience will supply 80 percent of replies.

It’s an eerie trend, but one marketers can use to identify the minority that acts as the majority. Using information about them, entrepreneurs may be able to transform some of the 80 percent into the 20 percent – and vice versa.

5. $>%

Graphically, this rule might look like a censored swear word, but like a curse, it is devilishly simple yet its power is difficult to believe. Essentially, regardless of a consumer audience’s demographics, it is safe for entrepreneurs to assume that they don’t want to do math. Therefore, in promotional marketing materials, dollars-off will generate a greater response than percentage-off, all things being equal. Whole-number dollars seem more straightforward, so customers are less likely to question a business’s marketing motives when presented with such deals. Therefore, $>% is a small rule, but one new entrepreneurs can use to profit as their business starts booming.

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